Amid market turmoil over the status of President Donald Trump’s trade deal with the Chinese, many American businesses are focused on a different threat: his promise to unilaterally cancel the North American Free Trade Agreement.
Trump said on his way home from Argentina that he would give Congress a choice between his US-Mexico-Canada Agreement or USMCA, or none at all.
Killing the 1994 trade deal without a successor in place would invite Mexico and Canada – both leading importers of US goods – to put tariffs on items coming from the United States, risking a severe economic shock.
“We have continuously told the administration throughout the USMCA process that it is essential for the new agreement to be implemented seamlessly, so that our businesses can learn the new rules and have time to adjust our supply chains to take advantage of the deal,” said Rick Helfenbein, president of the American Apparel and Footwear Association. “Adding additional pressure on Congress to sign or fail is not in the best interest of America.”
Top White House advisers have been saying for months that they’re confident Democrats will approve the USMCA.
But while Democrats, and even some Republicans, have made clear they have reservations, it’s not clear whether they have the will to call Trump’s bluff by risking a return to the pre-NAFTA world.
“I don’t think any responsible member of Congress would oppose the USMCA and see NAFTA withdrawn. That would cause utter havoc in the markets, disrupt our agreements and disrupt our supply chains,” said Welles Orr, who served as assistant US trade representative under President George H.W. Bush.
Yet others argued that Democrats won’t be eager to hand a victory to Trump.
“No one actually loves the new NAFTA. Democrats could say ‘forget it’ and blame it on Trump when no deal is in place,” said Phil Levy, senior fellow at the Chicago Council on Global Affairs who served as a trade economist under President George W. Bush.
“I will be formally terminating NAFTA shortly,” Trump told reporters aboard Air Force One. “Then Congress will have a choice of approving the USMCA, which is a phenomenal deal. Much, much better than NAFTA. A great deal.”
The deal requires approval from Congress as well as legislatures in Canada and Mexico before it can take effect. If Trump formally alerts the other two countries that he intends to withdraw from the original trade agreement, it will start a six-month clock during which Congress can either approve the USMCA or leave no trade deal in place. Lawmakers can suggest small changes to the agreement, either through the legislation or in potential side deals.
Rep. Nancy Pelosi, the Democrats’ nominee to become speaker of the House next year, has called the deal a “work in progress.”
Their hesitation reflects opposition to the USMCA from multiple quarters. The AFL-CIO has so far withheld its support, which could be essential for getting Democrats on board. A variety of industry groups – ranging from vegetable and fruit growers to apparel makers – have also raised concerns. Plus, automakers have said that any benefits generated by the USMCA could be canceled out unless Trump lifts his tariffs on steel and aluminum imports.
There is some debate on whether Trump has the power to withdraw from NAFTA unilaterally. The text of the agreement allows him to formally withdraw from NAFTA six months after he notifies the other two parties, but it’s unclear if he also needs congressional approval. That means he could face legal challenges from industry groups that feel like they’d be hurt by the new deal, as well as in Congress.
New Jersey Democrat Rep. Bill Pascrell, a member of the House Ways and Means subcommittee on trade who has expressed reservations, said in a statement to CNN that he wasn’t taking Trump’s quick threat to terminate the original agreement seriously.
“As to Trump’s threats, he’s not someone I take at his word,” Pascrell said.
“Trump boasted about what a great deal the USMCA was, yet a day after signing is resorting to threats to force Congress’s hand,” he added. “This doesn’t display confidence in the deal he made.”